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Posts Tagged ‘fraud’

It’s a long fall from professional athlete to (allegedly) ripping off identities in order to harvest fraudulent tax refunds, but these three guys appear to have pulled it off.

Former NY Giants defensive tackle William Joseph, Vikings running back Michael Bennett, and Patriots defensive tackle Louis Gachelin were allegedly part of a scheme to steal social security numbers and use the victims’ identities to file false tax returns claiming refunds.

Unfortunately, such deviousness is not an isolated incident:

A Treasury Inspector General for Tax Administration report indicated that through March 3, the IRS had identified more than 441,000 tax returns claiming $2.7 billion in fraudulent refunds and prevented the issuance of $2.6 billion (97 percent) of those fraudulent refunds.

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In a case decided earlier today, the Supreme Court held that a husband and wife who were Japanese citizens but lawful residents of the U.S. could be deported after pleading guilty to filing a false tax return.

Mr. and Mrs. Kawashima, seeking refuge from the repeated Godzilla attacks that plague their homeland, fled Japan and became legal permanent residents of the U.S. in 1984. Ten years later, Mr. Kawashima completed the process of assimilating into our society and becoming a “true” American by egregiously cheating on his taxes. He pled guilty to filing a false return under I.R.C. § 7206(1), while his wife pled guilty to aiding and assisting in the filing of a false return under I.R.C. § 7206(2).

I.R.C. §§ 7206  provides that willfully filing a false tax return is a felony. The issue at hand for the Supreme Court, however, was whether a conviction under these sections constituted an “aggravated felony” under the immigration laws, punishable by deportation.

An aggravated felony is one that either:

Clause #1: Involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or

Clause #2:  Is described in I.R.C. § 7201 (relating to tax evasion) in which the revenue loss to the government exceeds $10,000.

The Kawashimas argued that their conviction for filing a false return failed to meet the standard of an aggravated felony for three reasons:

1. Clause #1 did not apply to their crime, as I.R.C. § 7206 does not contain the words “fraud” or “deceit,”

2. Clause #1 was not intended to cover tax crimes, as that was solely the responsibility of Clause #2, and

3. Since Clause #2 was specific to tax evasion under I.R.C. § 7201, it did not cover their conviction under I.R.C. § 7206.

In its 6-3 decision, the Supreme Court shot down all three arguments, holding that the Kawashimas’ previous conviction qualified as an aggravated felony under Clause #1, as it involved fraud — even if fraud was not an express requirement of the statute — and the loss to the government exceeded $10,000. So sadly, it’s back to Japan for the Kawashimas.

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Certain things, while having the look, sound, and even feel of illegality, are actually within the confines of the law, like cock-fighting, marrying a step-sister, or killing a hobo for sport. Wait…what? OK, scratch that last one. But you get the idea. The law is complicated and convoluted, and what separates the guilty from the accused is often times attributable to puzzling semantics.

Consider this recent Tax Court case, in which an air conditioning technician, despite conducting a pattern of behavior that any reasonable person would coin corporate fraud, successfully avoided over $260,000 in penalties courtesy of the specific nuances of the tax law.  

Paul Avenell (Avenell) owned 96% of a corporation (Tacon). Tacon was sued, lost, and as a consequence, owed significant sums to a former subcontractor. Believing the verdict to be unjust, Avenell filed for bankruptcy and began to divert funds away from the corporation so they couldn’t be accessed by his creditor. As checks came in, he would exchange them for cashier’s checks, which were used to pay both corporate and personal expenses. As a result, the income was never recorded inside Tacon. The IRS assessed tax deficiencies, as well as substantial fraud penalties.

Despite his subversive behavior, the court found that Avenell had not committed tax fraud, because his concealment of income was done with the intent of avoiding judgment collection, rather than with the specific purpose of evading income tax.

Respondent infers that petitioner intended to evade taxes by exchanging general contractor’s checks for cashier’s checks and using those funds for personal purposes, including making a personal loan and opening a Cayman Islands bank account. Respondent further infers fraudulent intent from petitioner’s purchases of real estate in others’ names. Piling inference upon inference, however, does not qualify as clear and convincing evidence.  His inferences fall short of the required proof of fraud by clear and convincing evidence. We cannot conclude that petitioner’s delusive behavior was part of a deliberate scheme of fraudulent tax evasion. Petitioner credibly testified that he refused to deposit funds into Tacon’s account to avoid the judgment collection. The timing of petitioner’s delusive behavior involving cashier’s checks, the Cayman Islands bank account, real property purchases and the personal loan is consistent with that of Grant Metal’s judgment. We do not condone petitioner’s efforts to avoid judgment collection. We also do not find, however, that his actions were done with the intent to evade tax.

Because the underlying tax deficiencies were assessed more than three years from the date the tax returns were filed, the failure of the IRS to prove fraud — which would have extended the statute of limitations indefinitely — permitted Avenell to avoid the assessed tax in addition to the dismissed fraud penalties.

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